Last week, Godzilla vs. Kong helped begin to change the narrative regarding what the film industry will look like after the pandemic. It brought in a respectable $49 million in tickets sales in the first week, the biggest of any new film since the lockdowns started last March. Not long ago, people were discussing the likely scenario of movie theaters going extinct. As Mark Twain once quipped “the reports of my death are greatly exaggerated”. Analyst Eric Wold weighed in saying the success of the release “destroys lingering concerns around the theatrical window importance and demonstrates a solid path to resurgence.” While it is clear business models for both content creators and distributors have changed forever, maybe the changes won’t be quite as dramatic as we thought.  

Godzilla vs. Kong’s box office success is yet another hint that as vaccines continue to be distributed and the weather gets better, maybe things are slowly on their way back to some semblance of normal. It also shows how much people are attracted to a classic story. Whether it’s a movie featuring Godzilla and King Kong, a fairy tale, or a superhero, people never get sick of them.  

From the Disney fairy tales we all know, to much older stories told for generations in every part of the world, people gravitate towards the same storylines and predictable story archetypes. Why is that? In the book Into the Woods author John Yorke suggests the way we tell stories has to do with the human need to find order in a chaotic world that is hard to understand. Yorke writes “every act of perception is an attempt to impose order, to make sense of a chaotic universe. Storytelling, at one level, is a manifestation of this process.”

When it comes to investing, you’ll often hear the term “market narrative” used. If you use the term “market story” instead the same principles described above apply. People want clean, straightforward reasons for why markets go up, why they go down, and what will happen next. We want predictable stories and paradigm shifts, not unpredictable and incremental change. In reality, this is not how markets work. Sometimes you can’t explain why the market went up or went down over a given period of time. Our tendency to gravitate towards stories can lead people to lean into their biases, and it can also create stories that become self-fulfilling if enough people start believing them. Stories have a lot of power.  

Two recent narratives that involved bias: 

• If Donald Trump wins the 2016 election, the stock market is going to tank 
• If Joe Biden wins the 2020 election, the stock market is going to tank 

Two recent narratives that became self-fulfilling (via Morgan Housel): 

• “We believed a story that the world was running out of oil, and whether it was true or not, we believed it. Oil prices rose from $30 in 2003 to $140 in 2008. But high prices gave oil producers the financial incentive to come up with innovating drilling techniques — mastering fracking and horizontal drilling — which has led to the surge in oil output and cheap oil prices. It wasn’t a story about drilling technology; we got drilling technology because of a story.” 

• “Apple, Amazon, Google and Facebook created a story about changing the world with technology, which has let them attract the best engineers who can actually build that world-changing technology. The same is true for the world’s biggest hedge funds.” 

Much like with an overhyped bad movie, sometimes investment stories can be more marketing than they are substance. For example, the financial industry is now creating stories around themed ETF and mutual funds. Think space is the next frontier for investing? You can now invest in a Space Exploration and Innovation ETF (oddly, two of its holdings are John Deere and Netflix). Want to follow what stocks investors are talking most about online? Invest in the BUZZ ETF (it looks a lot like the Nasdaq index fund with a higher fee). When it comes to telling a good story, Hollywood has nothing on the financial industry.

What’s interesting about investment narratives is how certain people are of them in the moment, and how fast people’s belief in them can change. Look back to March of 2020. Many of the same talking heads predicting doomsday for the stock market are now saying we are at the beginning of a second “Roaring 20’s”. Stories help us grapple with the complexity and randomness of markets. As conditions change, so do the stories we tell ourselves about why.

When it comes to investing, the truth about what actually drives markets and positive financial outcomes doesn’t satisfy us. They aren’t dictated by stories (or algorithms for that matter). The stock market generally improves over the long-term, but it can be volatile, irrational, and have dramatic swings in the short-term. Just like people. Saving, proper capital allocation, and time in the market are the best tools at your disposal when it comes to building wealth. Unfortunately, that answer is about as satisfying as a bowl of kale to snack on when you’re sitting down to watch King Kong and Godzilla tear some cities up. While it may be boring, removing stories and bias from your decision-making and remaining disciplined will lead to much better outcomes over the long-term.  

Disclosures

Citations

AMC upgraded as ‘Godzilla vs. Kong’ renews confidence in the domestic box office, Sarah Whitten, CNBC.com, April 5 2021

The Greatest Story Ever Told, Morgan Housel- The Collaborative Fund, 2017

The Great Mental Models- Volume 2, Shane Parrish, 2020

Into the Woods, John York, 2013

Theme ETFs Tell Stories With All the Same Characters, James Mackintosh- Wall Street Journal, April 4, 2021

The Day the Growth Trade Topped, Josh Brown- The Reformed Broker, March 8, 2021